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Alembic Pharma
Performance Highlights
Y/E March (` cr) Net Sales Other Income Operating Profit Interest Net Profit
Source: Company, Angel Research
BUY
CMP Target Price
2QFY2012 396 60 7 38 % chg (qoq) (3.6) 820.0 11.9 (1.4) 16.3 Angel Estimates 388 54 7 32
`43 `82
12 Months
3QFY2012 381 1 68 7 44
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Alembic Pharma (Alembic) reported a strong performance for 3QFY2012. The companys growth was driven by the exports and domestic formulation business (which performed better than others), as restructuring of the business has now started showing results. Alembic reported robust sales growth and improvement in OPM during the quarter. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy view on the stock. Results above estimates: Alembic reported strong revenue growth of 15.5% yoy to `381cr, although the domestic formulation business grew by just 7.9%. However, the main growth driver was the exports segment, which grew by 50.4% yoy, driven by the API and formulations business. OPM for the quarter came in at 17.8% (15.3% in 2QFY2012). During the quarter, the company recorded net profit of `44cr, primarily driven by revenue growth and expansion in OPM. Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2011-13, we expect the company to post a CAGR of 15.4% and 34.8% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy recommendation on the stock with a target price of `82. Key Financials (Consolidated)
Y/E March (` cr) Net Sales % chg Net Profit % chg EPS (`) EBITDA Margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 74.1 1.1 7.6 17.1
3m 2.2 (8.9)
1yr* 1.6 -
3yr* 84.0 -
FY2011 1,184 85 4.5 12.2 9.7 25.7 16.2 2.8 1.0 8.0
FY2012E 1,370 15.7 128 49.8 6.8 15.5 6.5 38.9 25.1 2.3 0.9 5.6
FY2013E 1,576 15.0 155 21.4 8.2 15.9 5.3 38.8 26.6 1.9 0.8 4.7
% chg (qoq) 9MFY2012 (3.6) 820.0 (4.9) 11.9 (1.4) (4.3) 18.9 33.0 16.3 16.3 1,121 2 1,122 566 50.5 179 15.9 21 25 135 24 111 111 5.9
Actual 381 1 68 7 9 44
Estimates 388 0 54 7 7 32
Results above estimates: Alembic reported strong revenue growth of 15.5% yoy to `381cr, although the domestic formulation business grew by just 7.9%. However, the main growth driver was the exports segment, which grew by 50.4% yoy, driven mainly by the API and formulations business. Management expects FY2013 to be a strong year for the domestic formulations business, where the company expects to log 12-15% yoy growth, driven by the chronic segment. We expect growth momentum of the domestic formulation business to continue going ahead, as the restructuring exercise undertaken by management is now showing positive results. Exports, on the other hand, posted robust growth of 51.2%, driven by robust growth in API as well formulations, which grew by 113% and 10.9%, respectively. On the U.S. regulatory filing front, the company reported cumulative ANDA filings of 41 ANDAs in the U.S. with 17 approvals.
Net profit grows to `44cr: Alembic reported OPM of 17.8% in 3QFY2012, which was higher on a qoq basis mainly on the back of lower other expenditure. During the quarter, other expenditure as a percentage of sales stood at 19.8% (23.0% in 2QFY2012). Consequently, net profit came in at `44cr, higher than our estimate of `38cr.
Concall Highlights
Contribution of the chronic segment (around 35% to domestic formulation sales) grew by 20% yoy in 3QFY2012. For FY2013, domestic formulation growth is expected to be at 12-15%. For API exports, growth would be 10-15% yoy in FY2013. Management plans to file eight ANDAs in FY2012. Going forward, management targets to file 12-15 ANDAs and expect 10 ANDAs to get approval every year. For FY2013, management has guided for `110cr-120cr capex, of which `70cr would be towards the exports formulation plant, which would come on stream in 3QFY2013. Tax rate for FY2012 and FY2013 would be around 18% of PBT.
Investment arguments
Restructuring to drive growth: Alembic has been restructuring its business portfolio, which would aid in improving the companys growth and operating performance. The companys domestic formulation business contributed 57% to its total sales in FY2011, with 75% of its revenue coming from the anti-infective, respiratory, gynaecological and gastro therapeutic space. The company has a strong field force of ~2,700 MRs. On the export front, the formulation business contributed 14% to the total turnover, with majority of the contribution coming from Europe and the U.S. In the U.S., YTD the company has filed for 41 ANDAs and has received 15 approvals. The international API business contributes 28% to the total turnover. Going forward, the company expects its domestic formulation business to grow at industry pace. Further, revenue from the U.S. generic market is expected to scale up on the back of product approvals. Profitability and return ratios to improve: On the OPM front, we expect Alembics margin to improve from 12.2% in FY2011 to 15.0% by FY2013, given the improving productivity of the field force going ahead. The company plans to reduce debt (currently at `339cr) going ahead, as it does not foresee any major capital expenditure requirements except the normal capex. Hence, it would be utilizing its operating cash flows to repay debt. Overall, the company has RoE of over 35%.
Outlook and valuation: Alembics growth and profitability profile has improved post the restructuring carried out by management. Over FY2011-13, we expect the company to post a CAGR of 15.4% and 34.8% in its sales and net profit, respectively. At the CMP, the stock is trading at attractive valuations. Hence, we maintain our Buy rating on the stock with a target price of `82.
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT / Interest)
1.1 2.2 4.4 1.0 1.7 5.3 0.8 1.4 6.3 2.1 71.1 72.2 67.4 105 2.9 70.8 71.9 69.7 95 2.8 70.0 71.2 69.0 97 16.2 16.7 25.7 25.1 26.0 38.9 26.6 27.0 38.8 9.7 79.9 1.7 13.0 5.5 1.1 21.4 12.4 82.0 2.0 20.8 7.7 1.0 34.3 12.9 82.0 2.1 21.9 7.4 0.9 35.0 4.5 4.5 6.1 1.5 15.7 6.8 6.8 9.0 1.9 19.1 8.2 8.2 10.8 2.3 23.3 9.5 7.0 2.7 3.5 1.0 7.8 1.8 6.3 4.8 2.2 4.4 0.9 5.5 1.6 5.2 4.0 1.8 5.4 0.7 4.6 1.5
FY2011
FY2012E
FY2013E
E-mail: research@angeltrade.com
Website: www.angeltrade.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Alembic Pharma No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):